10-Q 1 hghq32016form10-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37665
HERTZ GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
61-1770902
(I.R.S. Employer
Identification Number)

8501 Williams Road
Estero, Florida 33928
(239) 301-7000
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
o
Accelerated filer 
o
Non-accelerated filer 
x
Smaller reporting company 
o
 
 
 
 
(Do not check if a smaller
reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding as of the latest practicable date.
Class
 
Shares Outstanding at
October 31, 2016
Common Stock, par value $0.01 per share
 
82,966,420
 
 
 
 
 
 
 
 



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
INDEX

 
 
 
 
 
Page
 
 
 
 
 
 
 
 



PART I—FINANCIAL INFORMATION
ITEM l.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value)
 
September 30,
2016
 
December 31, 2015
ASSETS
 
 
 
Cash and cash equivalents
$
1,430

 
$
474

Restricted cash and cash equivalents:
 
 
 
Vehicle
279

 
289

Non-vehicle
45

 
44

Total restricted cash and cash equivalents
324

 
333

Receivables:
 
 
 
Vehicle
674

 
1,137

Non-vehicle, net of allowance of $43 and $36, respectively
782

 
649

Total receivables, net
1,456

 
1,786

Inventories, net
33

 
29

Prepaid expenses and other assets
569

 
966

Revenue earning vehicles:
 
 
 
Vehicles
14,487

 
13,441

Less accumulated depreciation
(2,779
)
 
(2,695
)
Total revenue earning vehicles, net
11,708

 
10,746

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,165

 
1,171

Service equipment and other
754

 
809

Less accumulated depreciation
(1,041
)
 
(978
)
Total property and equipment, net
878

 
1,002

Other intangible assets, net
3,473

 
3,522

Goodwill
1,256

 
1,261

Assets of discontinued operations

 
3,395

Total assets
$
21,127

 
$
23,514

LIABILITIES AND EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
209

 
$
207

Non-vehicle
583

 
559

Total accounts payable
792

 
766

Accrued liabilities
1,073

 
1,035

Accrued taxes, net
196

 
128

Debt:
 
 
 
Vehicle
10,170

 
9,823

Non-vehicle
4,693

 
5,947

Total debt
14,863

 
15,770

Public liability and property damage
424

 
394

Deferred taxes on income, net
2,206

 
2,168

Liabilities of discontinued operations

 
1,234

Total liabilities
19,554

 
21,495

Commitments and contingencies

 

Equity:
 
 
 
Preferred Stock, $0.01 par value, no shares issued and outstanding

 

Common Stock, $0.01 par value, 85 and 464 shares issued and 83 and 423 shares outstanding
1

 
4

Additional paid-in capital
2,217

 
3,343

Accumulated deficit
(442
)
 
(391
)
Accumulated other comprehensive income (loss)
(103
)
 
(245
)
 
1,673

 
2,711

Treasury Stock, at cost, 2 shares and 41 shares
(100
)
 
(692
)
Total equity
1,573

 
2,019

Total liabilities and equity
$
21,127

 
$
23,514

The accompanying notes are an integral part of these financial statements.

1


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Worldwide vehicle rental
$
2,390

 
$
2,426

 
$
6,353

 
$
6,552

All other operations
152

 
149

 
441

 
439

Total revenues
2,542

 
2,575

 
6,794

 
6,991

Expenses:
 
 
 
 
 
 
 
Direct vehicle and operating
1,353

 
1,345

 
3,778

 
3,838

Depreciation of revenue earning vehicles and lease charges, net
695

 
631

 
1,940

 
1,859

Selling, general and administrative
227

 
218

 
685

 
692

Interest expense, net:
 
 
 
 
 
 
 
Vehicle
72

 
65

 
211

 
189

Non-vehicle
84

 
88

 
269

 
258

Total interest expense, net
156

 
153

 
480

 
447

Other (income) expense, net
3

 
(28
)
 
(86
)
 
(30
)
Total expenses
2,434

 
2,319

 
6,797

 
6,806

Income (loss) from continuing operations before income taxes
108

 
256

 
(3
)
 
185

(Provision) benefit for taxes on income (loss) of continuing operations
(64
)
 
(39
)
 
(33
)
 
(33
)
Net income (loss) from continuing operations
44

 
217

 
(36
)
 
152

Net income (loss) from discontinued operations
(2
)
 
20

 
(15
)
 
51

Net income (loss)
$
42

 
$
237

 
$
(51
)
 
$
203

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
84

 
91

 
85

 
91

Diluted
85

 
91

 
85

 
92

 
 
 
 
 
 
 
 
Earnings (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic earnings (loss) per share from continuing operations
$
0.52

 
$
2.38

 
$
(0.42
)
 
$
1.67

Basic earnings (loss) per share from discontinued operations
(0.02
)
 
0.22

 
(0.18
)
 
0.56

Basic earnings (loss) per share
$
0.50

 
$
2.60

 
$
(0.60
)
 
$
2.23

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share from continuing operations
$
0.52

 
$
2.38

 
$
(0.42
)
 
$
1.65

Diluted earnings (loss) per share from discontinued operations
(0.03
)
 
0.22

 
(0.18
)
 
0.56

Diluted earnings (loss) per share
$
0.49

 
$
2.60

 
$
(0.60
)
 
$
2.21

The accompanying notes are an integral part of these financial statements.

2


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
42

 
$
237

 
$
(51
)
 
$
203

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
14

 
(43
)
 
32

 
(82
)
Unrealized holding gains (losses) on securities
3

 

 
11

 

Net gain (loss) on defined benefit pension plans




(34
)


Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans
2

 
3

 
7

 
9

Total other comprehensive income (loss) before income taxes
19

 
(40
)
 
16

 
(73
)
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans




14



Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 

 
(3
)
 
(2
)
Total other comprehensive income (loss)
18

 
(40
)
 
27

 
(75
)
Total comprehensive income (loss)
$
60

 
$
197

 
$
(24
)
 
$
128



The accompanying notes are an integral part of these financial statements.


3

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)


 
Nine Months Ended
September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(51
)
 
$
203

Less: Net income (loss) from discontinued operations
(15
)
 
51

Net income (loss) from continuing operations
(36
)
 
152

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
1,887

 
1,803

Depreciation and amortization, non-vehicle
195

 
206

Amortization and write-off of deferred financing costs
31

 
46

Amortization and write-off of debt discount (premium)
5

 
(2
)
Loss on extinguishment of debt
40

 

Stock-based compensation charges
16

 
13

Provision for receivables allowance
35

 
24

Deferred taxes on income
11

 
33

Impairment charges and asset write-downs
31

 
26

(Gain) loss on sale of shares in equity method investment
(75
)
 
(56
)
Other

 
(5
)
Changes in assets and liabilities
 
 
 
Non-vehicle receivables
(171
)
 
(84
)
Inventories, prepaid expenses and other assets
(14
)
 
(16
)
Non-vehicle accounts payable
25

 
(15
)
Accrued liabilities
16

 
100

Accrued taxes
23

 
21

Public liability and property damage
32

 
19

Net cash provided by (used in) operating activities
2,051

 
2,265

Cash flows from investing activities:
 
 
 
Net change in restricted cash and cash equivalents, vehicle
11

 
288

Net change in restricted cash and cash equivalents, non-vehicle
(2
)
 
(10
)
Revenue earning vehicles expenditures
(9,250
)
 
(9,478
)
Proceeds from disposal of revenue earning vehicles
6,960

 
6,666

Capital asset expenditures, non-vehicle
(99
)
 
(183
)
Proceeds from disposal of property and other equipment
53

 
64

Acquisitions, net of cash acquired

 
(95
)
Purchases of shares in equity method investment
(45
)
 

Sales of shares in equity method investment
233

 
100

Net cash provided by (used in) investing activities
(2,139
)
 
(2,648
)

The accompanying notes are an integral part of these financial statements.

4


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(In millions)

 
Nine Months Ended
September 30,
 
2016
 
2015
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
7,665

 
6,069

Repayments of vehicle debt
(7,320
)
 
(5,223
)
Proceeds from issuance of non-vehicle debt
2,427

 
1,457

Repayments of non-vehicle debt
(3,684
)
 
(1,547
)
Purchase of treasury shares
(100
)
 
(262
)
Payment of financing costs
(73
)
 
(11
)
Early redemption premium payment
(13
)
 

Transfers (to) from discontinued entities
2,122

 
(50
)
Other
10

 

Net cash provided by (used in) financing activities
1,034

 
433

Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations
10

 
(19
)
Net increase (decrease) in cash and cash equivalents during the period from continuing operations
956

 
31

Cash and cash equivalents at beginning of period
474

 
474

Cash and cash equivalents at end of period
$
1,430

 
$
505

 

 

Cash flows from discontinued operations:
 
 
 
Cash flows provided by (used in) operating activities
$
205

 
$
418

Cash flows provided by (used in) investing activities
(77
)
 
(466
)
Cash flows provided by (used in) financing activities
(97
)
 
38

Effect of foreign exchange rate changes on cash and cash equivalents

 
(2
)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations
$
31

 
$
(12
)
 
 
 
 
Supplemental disclosures of cash information for continuing operations:
 
 
 
Cash paid during the period for:
 
 
 
Interest, vehicle
$
183

 
$
160

Interest, non-vehicle
218

 
228

Income taxes, net of refunds
35

 
24

Supplemental disclosures of non-cash information:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities
$
138

 
$
129

Sales of revenue earning vehicles included in receivables
603

 
570

Purchases of property and other equipment included in accounts payable
15

 
47

Sales of property and other equipment included in receivables
5

 
28

Revenue earning equipment and property and equipment acquired through capital lease
16

 
11


The accompanying notes are an integral part of these financial statements.

5


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited
(In millions)


 
Preferred Stock
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock Shares
 
Treasury Stock Amount
 
Total
Equity
Balance at:
 
 
 
 
December 31, 2015
$

 
423

 
$
4

 
$
3,343

 
$
(391
)
 
$
(245
)
 
41

 
$
(692
)
 
$
2,019

Net income (loss)

 

 

 

 
(51
)
 

 

 

 
(51
)
Other comprehensive income (loss)

 

 

 

 

 
27

 

 

 
27

Net settlement on vesting of restricted stock

 

 

 
(2
)
 

 

 

 

 
(2
)
Stock-based employee compensation charges

 

 

 
17

 

 

 

 

 
17

Exercise of stock options

 
1

 

 
10

 

 

 

 

 
10

Share Repurchase

 

 

 

 

 

 
2

 
(100
)
 
(100
)
Common shares issued to directors

 

 

 
1

 

 

 

 

 
1

Capital effect of Spin-Off

 
(339
)
 
(3
)
 
(689
)
 

 

 
(41
)
 
692

 

Distribution of Herc Holdings, Inc.

 

 

 
(463
)
 

 
115

 

 

 
(348
)
September 30, 2016
$

 
85

 
$
1

 
$
2,217

 
$
(442
)
 
$
(103
)
 
2

 
$
(100
)
 
$
1,573



The accompanying notes are an integral part of these financial statements.

6


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited


Note 1Background

Hertz Global Holdings, Inc. ("Hertz Global" or the "Company") was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC which wholly owns The Hertz Corporation ("Hertz"), Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. Hertz operates its vehicle rental business primarily through the Hertz, Dollar and Thrifty brands from company-owned, licensee and franchisee locations in the U.S., Africa, Asia, Australia, Canada, Europe, Latin America, the Middle East and New Zealand. Through its Donlen subsidiary, Hertz provides vehicle leasing and fleet management services.

On June 30, 2016, former Hertz Global Holdings, Inc. (for periods on or prior to June 30, 2016, “Old Hertz Holdings” and for periods after June 30, 2016, “Herc Holdings”) completed a spin-off (the “Spin-Off”) of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc. (“New Hertz”), which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off, on a one-to-five basis. See Note 18, "Equity and Earnings (Loss) Per Share," for further information regarding the equity of Old Hertz Holdings and Hertz Global. Hertz Global is now an independent public company and trades on the New York Stock Exchange under the symbol "HTZ". Herc Holdings, which changed its name to Herc Holdings Inc. on June 30, 2016, trades on the New York Stock Exchange under the symbol “HRI”.

Despite the fact that this was a reverse spin-off and the Company was spun off from Old Hertz Holdings and was the legal spinnee in the transaction, for accounting purposes, due to the relative significance of New Hertz to Old Hertz Holdings, the Company is considered the spinnor or divesting entity and Herc Holdings is considered the spinnee or divested entity. As a result, New Hertz, or Hertz Global, is the “accounting successor” to Old Hertz Holdings. As such, the historical financial information of the Company reflects the financial information of the equipment rental business and certain parent legal entities as discontinued operations. See Note 3, "Discontinued Operations," for additional information.

Note 2Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

The year-end condensed consolidated balance sheet data of the Company was derived from audited financial statements of Old Hertz Holdings, but does not include all disclosures required by U.S. GAAP. The information included in this Form 10-Q should be read in conjunction with information included in the Old Hertz Holdings Form 10‑K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission ("SEC") on February 29, 2016 (the "Old Hertz Holdings 2015 Form 10‑K"), and as amended on March 4, 2016 (the "Old Hertz Holdings 2015 Form 10‑K/A").

As described in Note 1, "Background" and Note 3, "Discontinued Operations", the Company is the accounting successor to Old Hertz Holdings. As such, the historical financial information of the Company reflects the financial information of the equipment rental business and certain parent legal entities as discontinued operations. Unless noted otherwise, information disclosed in these notes to the condensed consolidated financial statements of the Company pertain to its continuing operations.

7

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


As disclosed below in "Recently Issued Accounting Pronouncements," the Company retrospectively adopted the guidance "Simplifying the Presentation of Debt Issuance Costs" on January 1, 2016.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Hertz Global and its wholly and majority owned domestic and international subsidiaries. In the event that the Company is a primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity are included in the Company's condensed consolidated financial statements. The Company accounts for its investments in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

Recently Issued Accounting Pronouncements
Adopted

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period

In June 2014, the FASB issued guidance that requires that a performance target in a share-based payment award that affects vesting and that can be achieved after the requisite service period is completed is to be accounted for as a performance condition; therefore, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and the amount of compensation cost recognized should be based on the portion of the service period fulfilled. The Company adopted this guidance prospectively on January 1, 2016 in accordance with the effective date. Adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

In January 2015, the FASB issued guidance that eliminates the concept of an event or transaction that is unusual in nature and occurs infrequently being treated as an extraordinary item. The Company adopted this guidance prospectively on January 1, 2016 in accordance with the effective date. Adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Amendments to the Consolidation Analysis

In February 2015, the FASB issued guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The Company adopted this guidance retrospectively on January 1, 2016, in accordance with the effective date. Adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued guidance clarifying that debt issuance costs related to line-of-credit and other revolving debt arrangements may be deferred and presented as an asset. The Company adopted this guidance retrospectively on January 1, 2016 in accordance with the effective date.
Adoption of this guidance required the Company to reclassify $73 million of debt issuance costs from prepaid expenses and other assets to debt in its condensed consolidated balance sheet as of December 31, 2015. Adoption of this new guidance did not impact the Company’s results of operations or cash flows.


8

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued guidance for customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The Company adopted this guidance prospectively on January 1, 2016, in accordance with the effective date. Adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Simplifying the Accounting for Measurement Period Adjustments for Business Combinations

In September 2015, the FASB issued guidance that requires adjustments to provisional amounts during the measurement period of a business combination to be recognized in the reporting period in which the adjustments are determined, rather than retrospectively. The Company adopted this guidance prospectively on January 1, 2016 in accordance with the effective date. Adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Not Yet Adopted

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance that will replace most existing revenue recognition guidance in U.S. GAAP. The new guidance applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The core principle of the guidance is that an entity should recognize revenue from customers for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The new principles-based revenue recognition model requires an entity to perform five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. Under the new guidance, performance obligations in a contract will be separately identified, which may impact the timing of recognition of the revenue allocated to each obligation. The measurement of revenue recognized may also be impacted by identification of new performance obligations and other provisions, such as collectability and variable consideration. The guidance will impact the Company’s accounting for certain contracts and its Hertz #1 Gold Plus Rewards liability. Also, additional disclosures are required about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new guidance may be adopted on either a full or modified retrospective basis. As originally issued, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the FASB deferred the effective date of the guidance until annual and interim reporting periods beginning after December 15, 2017.

In March 2016, the FASB issued clarifying guidance on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued guidance that reduces the complexity for identifying performance obligations and clarifies the implementation guidance on licensing for intellectual property. In May 2016, the FASB issued guidance that clarifies the collectability criterion, the presentation of sales taxes, and noncash consideration, and provides additional implementation practical expedients. The Company is in the process of determining the method and timing of adoption and assessing the overall impact of adopting this guidance on its financial position, results of operations and cash flows.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued guidance that makes several changes to the manner in which financial assets and liabilities are accounted for, including, among other things, a requirement to measure most equity investments at fair value with changes in fair value recognized in net income (with the exception of investments that are consolidated or accounted for using the equity method or a fair value practicability exception), and amends certain disclosure

9

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

requirements related to fair value measurements and financial assets and liabilities. This guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a modified retrospective transition method for most of the requirements. Based on current operations, adoption of this guidance is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Leases

In February 2016, the FASB issued guidance that replaces the existing lease guidance. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. The guidance will impact leases of our rental locations, as we own approximately 3% of the locations from which we operate our vehicle rental business, in addition to leases of other assets. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. This guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods using a modified retrospective transition approach. The Company is in the process of assessing the potential impact of adopting this guidance on its financial position, results of operations and cash flows.

Simplifying the Transition to the Equity Method of Accounting

In March 2016, the FASB issued guidance that eliminates the requirement to apply the equity method of accounting retrospectively when significant influence over a previously held investment is obtained. Rather, the guidance requires the investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method of accounting. This guidance is effective prospectively for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Based on current operations, adoption of this guidance is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued guidance that simplifies several areas of employee share-based payment accounting, including income taxes, forfeitures, minimum statutory withholding requirements, and classifications within the statement of cash flows. Most significantly, the new guidance eliminates the need to track tax “windfalls” in a separate pool within additional paid-in capital; instead, excess tax benefits and tax deficiencies will be recorded within income tax expense. This will result in the Company reclassifying excess tax benefits from additional paid-in capital to retained earnings on the balance sheet. The new guidance also gives entities the ability to elect whether to estimate forfeitures or account for them as they occur. Different adoption methods are required for the various aspects of the new guidance, including the retrospective, modified retrospective and prospective approaches, effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Adoption of the requirements within this guidance related to forfeitures, minimum statutory withholding requirements, and classifications within the statement of cash flows is not expected to have a material impact on the Company's financial condition, results of operations or cash flows. The Company is in the process of assessing the impact of the elimination of the tax "windfalls" within this guidance on its financial position, results of operations and cash flows.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance that sets forth a current expected credit loss (“CECL”) impairment model for financial assets, which replaces the current incurred loss model. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This guidance is effective for annual periods beginning after December 15, 2019 and interim

10

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

periods within those annual periods using a modified retrospective transition method. Adoption of this guidance is not expected to have a material impact on the Company's financial position, results of operations or cash flows.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued guidance that addresses the treatment of certain transactions in statements of cash flow, with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified. These items include debt prepayment or debt extinguishment costs, proceeds from the settlement of life insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using the retrospective transition method. The Company is in the process of assessing the potential impacts of adopting this guidance on its presentation of cash flows.

Note 3Discontinued Operations

As further described in Note 1, "Background," on June 30, 2016, the separation of Old Hertz Holdings' global vehicle rental and equipment rental businesses was completed. In connection with the Spin-Off, Hertz Global and Herc Holdings entered into multiple agreements that provide a framework for the relationships between the parties going forward. As the primary operating company for Hertz Global, the agreements that follow also apply to Hertz directly.

Separation and Distribution Agreement

Hertz Global entered into a separation and distribution agreement (the “Separation Agreement”) with Herc Holdings which, among other things, sets forth other agreements that govern the aspects of the relationship as follows:

Internal Reorganization and Related Financing Transactions - Provides for the transfers of entities and assets and the assumption of liabilities necessary to complete the Spin-Off, including the series of internal reorganization transactions such that Hertz Global holds the entities associated with Old Hertz Holdings’ global vehicle rental business, including Hertz, and Herc Holdings holds the entities associated with Old Hertz Holdings’ global equipment rental business, including Herc Rentals Inc. (“Herc”, formerly known as Hertz Equipment Rental Corporation, or “HERC”).

Pursuant to the Separation Agreement, Herc made certain cash transfers in the total amount of approximately $2.0 billion to Hertz Global and its subsidiaries in June 2016. To fund, among other things, such transfers, in connection with, and prior to, the Spin-Off, Herc issued senior secured second priority notes and entered into a new asset-based revolving credit agreement. Hertz Global and Hertz used the cash proceeds from these transfers to pay off the Senior Term Facility.

Legal Matters and Claims; Sharing of Certain Liabilities - Subject to any specified exceptions, each party to the Separation Agreement has assumed the liability for, and control of, all pending and threatened legal matters related to its own business, as well as assumed or retained liabilities, and has indemnified the other party for any liability arising out of or resulting from such assumed legal matters.

The Separation Agreement provides for certain liabilities to be shared by the parties. Hertz Global and Herc Holdings are each responsible for a portion of these shared liabilities. The division of these shared liabilities are set forth in the Separation Agreement. Hertz Global is responsible for managing the settlement or other disposition of such shared liabilities.

Other Matters - In addition to those matters discussed above, the Separation Agreement, among other things, (i) governs the transfer of assets and liabilities generally, (ii) terminates all intercompany arrangements between Hertz Global and Herc Holdings except for specified agreements and arrangements that follow the Spin-Off, (iii) contains further assurances, terms and conditions that require Hertz Global and Herc Holdings to use commercially reasonable efforts to consummate the transactions contemplated by the Separation Agreement

11

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

and the ancillary agreements, (iv) releases certain claims between the parties and their affiliates, successors and assigns, (v) contains mutual indemnification clauses and (vi) allocates expenses of the Spin-Off between the parties.

Transition Services Agreement

Hertz Global entered into a transition services agreement (the “Transition Services Agreement”) pursuant to which Hertz Global or its affiliates, including Hertz, will provide Herc Holdings specified services on a transitional basis for a term of up to two years following the Spin-Off, though Hertz Global may request certain transition services to be performed by Herc Holdings. The services to be provided by Hertz Global primarily include information technology and network and telecommunications systems support, human resources, payroll and benefits, accounting and finance, treasury, tax matters and administrative services. With certain exceptions, Hertz Global and Herc Holdings have agreed to charge for the services rendered the allocated costs associated with rendering these services, including a mark-up for certain services, which the Company will record as a reduction to the associated expenses.

Tax Matters Agreement

Hertz Global and Hertz entered into a tax matters agreement (the “Tax Matters Agreement”) with Herc Holdings and Herc that governs the parties’ respective rights, responsibilities and obligations after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns.

Under the Tax Matters Agreement, Herc Holdings, Herc, Hertz Global and Hertz are responsible for their respective tax liabilities. The agreement provides for no compensation due to any change in a tax attribute, such as a net operating loss ("NOL"). Tax attributes are allocated between the entities based on the applicable federal or state income tax law and regulations. The Tax Matters Agreement also requires that an unqualified opinion from a nationally recognized law firm, supplemental ruling from the Internal Revenue Service, or waiver from the other party be obtained upon the occurrence or contemplated occurrence of certain events which could impact the taxability of the transaction under the U.S. federal income tax law. The Spin-Off was a reverse spin-off, as such, Herc Holdings is the successor entity to Old Hertz Holdings and will file a tax return for the full year of 2016 which will include activity of Old Hertz Holdings for the first half of 2016.  In addition, the Company will file its own 2016 tax return that includes its activity for the second half of 2016.

Employee Matters Agreement

Hertz Global and Herc Holdings entered into an employee matters agreement (the “Employee Matters Agreement”) to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefit plans and programs and other related matters. The Employee Matters Agreement governs Hertz Global's and Herc Holdings’ obligations with respect to such matters for current and former employees of the vehicle rental business and the equipment rental business.

Intellectual Property Agreement

Hertz Global and Herc Holdings entered into an intellectual property agreement (the “Intellectual Property Agreement”) that provides for ownership, licensing and other arrangements regarding the trademarks and related intellectual property that Hertz Global and Herc Holdings use in conducting their respective businesses. The agreement provides that, following the Spin-Off, Herc Holdings will continue to have the right to use certain intellectual property associated with the Hertz brand for a period of four years on a royalty free basis.

Results of Discontinued Operations

The following table summarizes the results of the equipment rental business and certain parent legal entities which are presented as discontinued operations. The operations that are discontinued are comprised of Old Hertz Holdings'

12

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Worldwide Equipment Rental segment as well as certain parent entities that were presented as part of corporate operations prior to the Spin-Off.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Total revenues
$

 
$
401

 
$
677

 
$
1,131

Direct operating expenses

 
219

 
366

 
637

Depreciation of revenue earning equipment and lease charges, net

 
86

 
181

 
243

Selling, general and administrative

 
41

 
123

 
129

Interest expense, net(1)

 
5

 
17

 
20

Other (income) expense, net

 
(1
)
 
(1
)
 
(4
)
Income (loss) from discontinued operations before income taxes

 
51

 
(9
)
 
106

(Provision) benefit for taxes on discontinued operations
(2
)
 
(31
)
 
(6
)
 
(55
)
Net income (loss) from discontinued operations
$
(2
)
 
$
20

 
$
(15
)
 
$
51


(1) In addition to interest expense directly associated with Herc Holdings, the Company allocated all interest expense associated with the Senior ABL Facility to discontinued operations as this debt was repaid in connection with the Spin-Off in accordance with requirements as disclosed in Note 6, "Debt." For the three months ended September 30, 2015, the amount allocated was $4 million. For the nine months ended September 30, 2016 and 2015, the amount allocated was $5 million and $12 million, respectively.


13

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

The carrying amounts of the major classes of assets and liabilities of discontinued operations as of December 31, 2015 consisted of the following:

(In millions)
December 31, 2015
ASSETS
 
Cash and cash equivalents
$
12

Restricted cash and cash equivalents
16

Receivables, net of allowance
288

Inventories, net
22

Prepaid expenses and other assets
36

Revenue earning equipment, net
2,382

Property and other equipment, net
246

Other intangible assets, net
300

Goodwill
93

Total assets of discontinued operations
$
3,395

LIABILITIES
 
Accounts payable
$
109

Accrued liabilities and other
71

Accrued taxes, net
273

Debt
64

Public liability and property damage
8

Deferred taxes on income, net
709

Total liabilities of discontinued operations
$
1,234


As a result of the Spin-Off, the Company distributed $348 million in net assets of Herc Holdings, which has been reflected as a reduction to additional paid in capital and accumulated other comprehensive (income) loss in the accompanying condensed consolidated balance sheet and statement of changes in equity as of September 30, 2016. Also in connection with the Spin-Off, there was a $229 million reclassification related to the resulting continuing operations presentation of tax accounts from accrued taxes, net to prepaid expenses and other assets in the accompanying condensed consolidated balance sheets as of December 31, 2015.

Note 4Acquisitions and Divestitures

Acquisitions

Equity Investment

During the second quarter of 2016, the Company paid $45 million for investments in entities which are accounted for under the equity method. These investments are presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

Hertz Franchises

In February 2015, the Company acquired substantially all of the assets of certain Hertz-branded franchises, including existing vehicles and contract and concession rights, for $87 million. The franchises acquired include on airport locations in Indianapolis, South Bend and Ft. Wayne, Indiana and in Memphis, Tennessee, as well as several smaller off airport locations. The acquisition was part of a strategic decision at the time to increase the number of Hertz-owned locations and capitalize on certain benefits of ownership not available under a franchise agreement.


14

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

The acquisition was accounted for utilizing the acquisition method of accounting where the purchase price of the reacquired franchises was allocated based on estimated fair values of the assets acquired and liabilities assumed. The excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired was recorded as goodwill. The purchase price was allocated as follows:

(In millions)
U.S. Rental Car
Revenue earning vehicles
$
71

Property and equipment
6

Other intangible assets
9

Goodwill
1

Total
$
87


Divestitures

CAR Inc. Investment

In September 2015, the Company sold approximately 60 million shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange for net proceeds of $100 million which resulted in a pre-tax gain of $56 million, which has been recognized and recorded in the Company's corporate operations and is included in other (income) expense, net in the accompanying condensed consolidated statements of operations.

In March 2016, the Company sold 204 million shares of common stock of CAR Inc. and extended its commercial agreement with CAR Inc. to 2023, in exchange for $240 million, of which $233 million was allocated to the sale of shares based on the fair value of those shares. The sale of shares resulted in a pre-tax gain of $75 million, which has been recognized and recorded in the Company's corporate operations and is included in other (income) expense, net in the accompanying condensed consolidated statements of operations. Additionally, $7 million of the proceeds were allocated to the extension of the commercial agreement which have been deferred and are being recognized over the remaining term of the commercial agreement.

The Company's ownership interest in CAR Inc. is approximately 1.7% at September 30, 2016. The Company is unable to exercise significant influence over CAR Inc. and as a result, classifies the investment as an available for sale security. This investment is presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets. See Note 13, "Fair Value Measurements," for the fair value of the Company's available for sale securities at September 30, 2016.

Note 5Revenue Earning Vehicles

The components of revenue earning vehicles, net are as follows:
(In millions)
September 30, 2016
 
December 31, 2015
Revenue earning vehicles
$
14,022

 
$
13,242

Less: Accumulated depreciation
(2,614
)
 
(2,631
)
 
11,408

 
10,611

Revenue earning vehicles held for sale, net
300

 
135

Revenue earning vehicles, net
$
11,708

 
$
10,746



15

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Depreciation of revenue earning vehicles and lease charges, net includes the following:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Depreciation of revenue earning vehicles
$
631

 
$
581

 
$
1,766

 
$
1,747

(Gain) loss on disposal of revenue earning vehicles(a)
44

 
32

 
121

 
56

Rents paid for vehicles leased
20

 
18

 
53

 
56

Depreciation of revenue earning vehicles and lease charges, net
$
695

 
$
631

 
$
1,940

 
$
1,859


(a)    (Gain) loss on disposal of revenue earning vehicles by segment is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
U.S. Rental Car
$
43

 
$
34

 
$
124

 
$
59

International Rental Car
1

 
(2
)
 
(3
)
 
(3
)
Total
$
44

 
$
32

 
$
121

 
$
56


Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the time of disposal and the estimated holding periods for the vehicles. The cumulative impact of depreciation rate changes is as follows:
Increase (decrease)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
U.S. Rental Car(a)
$
43

 
$
26

 
$
88

 
$
83

International Rental Car
1

 

 
3

 

Total
$
44

 
$
26

 
$
91

 
$
83


(a)
The depreciation rate changes in the U.S. Rental Car operations for the three and nine months ended September 30, 2016 include a net increase in depreciation expense of $39 million based on the review completed during the third quarter of 2016. The depreciation rate changes in the U.S. Rental Car operations for the three and nine months ended September 30, 2015 include a net increase in depreciation expense of $11 million based on the review completed during the third quarter of 2015.


16

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Note 6Debt

As discussed in Note 3, "Discontinued Operations," on June 30, 2016, the Company completed a Spin-Off of the equipment rental business. Amounts presented herein relate to the debt associated with the vehicle rental business.

The Company's debt, including its available credit facilities, consists of the following (in millions):
Facility
 
Weighted Average Interest Rate at September 30, 2016
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
September 30,
2016
 
December 31,
2015
Non-Vehicle Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Loan
 
3.50%
 
Floating
 
6/2023
 
$
698

 
$

Senior RCF
 
N/A
 
Floating
 
6/2021
 

 

Senior Term Facility
 
N/A
 
N/A
 
N/A
 

 
2,062

Senior ABL Facility
 
N/A
 
N/A
 
N/A
 

 

Senior Notes(1)
 
6.21%
 
Fixed
 
4/2018–10/2024
 
4,000

 
3,900

Promissory Notes
 
7.00%
 
Fixed
 
1/2028
 
27

 
27

Other Non-Vehicle Debt
 
2.51%
 
Fixed
 
Various
 
11

 
2

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(43
)
 
(44
)
Total Non-Vehicle Debt
 
 
 
 
 
 
 
4,693

 
5,947

Vehicle Debt
 
 
 
 
 
 
 
 
 
 
HVF U.S. Vehicle Medium Term Notes
 
 
 
 
 
 
 
 
HVF Series 2010-1(2)
 
4.96%
 
Fixed
 
2/2018
 
115

 
240

HVF Series 2011-1(2)
 
3.51%
 
Fixed
 
3/2017
 
230

 
230

HVF Series 2013-1(2)
 
1.91%
 
Fixed
 
8/2018
 
625

 
950

 
 
 
 
 
 
 
 
970

 
1,420

HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Vehicle Variable Funding Notes
 
 
 
 
 
 
 
 
HVF II Series 2013-A(2)
 
1.63%
 
Floating
 
10/2017
 
1,483

 
980

HVF II Series 2013-B(2)
 
1.68%
 
Floating
 
10/2017
 
746

 
1,308

HVF II Series 2014-A
 
N/A
 
N/A
 
N/A
 

 
1,737

 
 
 
 
 
 
 
 
2,229

 
4,025

HVF II U.S. Vehicle Medium Term Notes
 
 
 
 
 
 
 
 
HVF II Series 2015-1(2)
 
2.93%
 
Fixed
 
3/2020
 
780

 
780

HVF II Series 2015-2(2)
 
2.30%
 
Fixed
 
9/2018
 
250

 
250

HVF II Series 2015-3(2)
 
2.96%
 
Fixed
 
9/2020
 
350

 
350

HVF II Series 2016-1(2)
 
2.72%
 
Fixed
 
3/2019
 
439

 

HVF II Series 2016-2(2)
 
3.25%
 
Fixed
 
3/2021
 
561

 

HVF II Series 2016-3(2)
 
2.56%
 
Fixed
 
7/2019
 
400

 

HVF II Series 2016-4(2)
 
2.91%
 
Fixed
 
7/2021
 
400

 

 
 
 
 
 
 
 
 
3,180

 
1,380


17

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Facility
 
Weighted Average Interest Rate at September 30, 2016
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
September 30,
2016
 
December 31,
2015
Donlen ABS Program
 
 
 
 
 
 
 
 
 
 
HFLF Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-2(2)
 
1.65%
 
Floating
 
9/2018
 
300

 
370

 
 
 
 
 
 
 
 
300

 
370

HFLF Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-3(2)
 
1.34%
 
Floating
 
10/2016–11/2016
 
134

 
270

HFLF Series 2014-1(2)
 
1.17%
 
Floating
 
12/2016–3/2017
 
179

 
288

HFLF Series 2015-1(2)
 
1.20%
 
Floating
 
3/2018–5/2018
 
272

 
295

HFLF Series 2016-1(2)
 
1.85%
 
Floating
 
2/2019–4/2019
 
385

 

 
 
 
 
 
 
 
 
970

 
853

Other Vehicle Debt
 
 
 
 
 
 
 
 
 
 
U.S. Vehicle RCF(3)
 
3.03%
 
Floating
 
6/2021
 
193



U.S. Vehicle Financing Facility
 
N/A
 
N/A
 
N/A
 

 
190

European Revolving Credit Facility
 
2.11%
 
Floating
 
10/2017
 
381

 
273

European Vehicle Notes(4)
 
4.29%
 
Fixed
 
1/2019–10/2021
 
729

 
464

European Securitization(2)
 
1.55%
 
Floating
 
10/2018
 
474

 
267

Canadian Securitization(2)
 
1.88%

Floating

1/2018

267


148

Australian Securitization(2)
 
3.12%
 
Floating
 
7/2018
 
121

 
98

Brazilian Vehicle Financing Facility
 
17.63%
 
Floating
 
10/2016
 
9

 
7

New Zealand RCF
 
4.64%
 
Floating
 
9/2018
 
31

 

Capitalized Leases
 
2.43%
 
Floating
 
10/2016–3/2020
 
359

 
362

 
 
 
 
 
 
 
 
2,564

 
1,809

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(43
)
 
(34
)
Total Vehicle Debt
 
 
 
 
 
 
 
10,170

 
9,823

Total Debt
 
 
 
 
 
 
 
$
14,863

 
$
15,770

N/A - Not Applicable


18

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

(1)
References to the "Senior Notes" include the series of Hertz's unsecured senior notes set forth on the table below. Outstanding principal amounts for each such series of the Senior Notes is also specified below:
(In millions)
Outstanding Principal
Senior Notes
September 30, 2016
 
December 31, 2015
4.25% Senior Notes due April 2018
$
250

 
$
250

7.50% Senior Notes due October 2018

 
700

6.75% Senior Notes due April 2019
1,250

 
1,250

5.875% Senior Notes due October 2020
700

 
700

7.375% Senior Notes due January 2021
500

 
500

6.25% Senior Notes due October 2022
500

 
500

5.50% Senior Notes due October 2024
800

 

 
$
4,000

 
$
3,900


$700 million of the 7.50% Senior Notes due October 2018 were redeemed in July 2016 as further described below. $800 million of the 6.75% Senior Notes due April 2019 were redeemed in October 2016 as described in Note 19, "Subsequent Events."

(2)
Maturity reference is to the "expected final maturity date" as opposed to the subsequent "legal maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness expect the relevant indebtedness to be repaid, which in the case of the HFLF Medium Term Notes was based upon various assumptions made at the time of the pricing of such notes. The legal final maturity date is the date on which the relevant indebtedness is legally due and payable.
(3)
Approximately $67 million of the aggregate maximum borrowing capacity under the U.S. Vehicle RCF is scheduled to expire in January 2018.
(4)
References to the "European Vehicle Notes" include the series of HHN BV's (as defined below) unsecured senior notes (converted from Euros to U.S. dollars at a rate of 1.12 to 1) set forth on the table below. Outstanding principal amounts for each such series of the European Vehicle Notes is also specified below:
(In millions)
Outstanding Principal
European Vehicles Notes
September 30, 2016
 
December 31, 2015
4.375% Senior Notes due January 2019
$
477

 
$
464

4.125% Senior Notes due October 2021
252

 

 
$
729

 
$
464

The Company is highly leveraged and a substantial portion of its liquidity needs arise from debt service on its indebtedness and from the funding of its costs of operations, acquisitions and capital expenditures. The Company’s practice is to maintain sufficient liquidity through cash from operations, credit facilities and other financing arrangements, to mitigate any adverse impact on its operations resulting from adverse financial market conditions. Approximately $3.2 billion of vehicle debt will mature within the next twelve months and the Company will need to refinance a portion of the debt. The Company has reviewed the credit facilities that will mature within the next twelve months and determined that it is probable that the Company will be able, and has the intent, to refinance the credit facilities before the expiration of such facilities.

In August 2016, the Company wrote off $1 million in deferred financing costs associated with the termination of HVFII commitments under the Series 2014-A Notes. In July 2016, the Company redeemed $700 million of the 7.50% Senior Notes due October 2018 and paid a $13 million early redemption premium. The Company also wrote off $6 million in deferred financing costs associated with the 7.50% Senior Notes due October 2018 and other non-vehicle debt terminations. In June 2016, the Company paid off its Senior Term Facilities and refinanced certain vehicle debt and wrote off $20 million in deferred financing costs.


19

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Non-Vehicle Debt

Senior Credit Facilities

In June 2016, in connection with the Spin-Off of the equipment rental business, the Senior Term Facility and the Senior ABL Facility were repaid in full and terminated.

Senior Facilities

In June 2016, in connection with the Spin-Off of the equipment rental business, Hertz, as parent borrower, entered into a credit agreement with respect to a new senior secured term facility (the “Senior Term Loan”) and a new senior secured revolving credit facility (the “Senior RCF”) and, together with the Senior Term Loan, (the “Senior Facilities”). At Hertz’s option and subject to certain conditions, certain of Hertz’s domestic subsidiaries may also become party to the Senior Facilities from time to time, as subsidiary borrowers. The Senior Facilities are comprised of a Senior Term Loan, with a $700 million initial principal balance, and a Senior RCF consisting of a $1.7 billion revolving credit facility, with a portion of the Senior RCF available for the issuance of letters of credit and the issuance of swing line loans. Subject to the satisfaction of certain conditions and limitations, the Senior Facilities allow for the addition of incremental term and/or revolving loan commitments and incremental term and/or revolving loans.

The interest rate applicable to the loans under the Senior Term Loan is based on a floating rate (subject to a LIBOR floor of 0.75%) that varies depending on Hertz’s consolidated total net corporate leverage ratio. The interest rates applicable to the loans under the Senior RCF are based on a floating rate that varies depending on Hertz’s consolidated total net corporate leverage ratio and corporate ratings.

The proceeds from the issuance of the Senior Term Loan were subsequently used to redeem all of the outstanding 7.50% Senior Notes (as defined below).

Senior Notes
In September 2016, Hertz issued $800 million in aggregate principal amount of 5.50% Senior Notes due 2024. The proceeds of this issuance, together with available cash, were used to redeem $800 million of the 6.75% Senior Notes due 2019 in October 2016, see Note 19, "Subsequent Events."
In July 2016, Hertz completed the redemption of all its outstanding 7.50% Senior Notes due 2018 (the "7.50% Senior Notes") using proceeds received from the issuance of the Senior Term Loan and available cash to fund the redemption. Consequently, Hertz terminated, canceled and discharged all of its obligations under the 7.50% Senior Notes and under the Indenture dated as of September 30, 2010 (as supplemented). In addition to the payment of $700 million in principal amount of the 7.50% Senior Notes, Hertz paid an additional $25 million, comprised of $13 million for an early redemption premium of 1.875% of the principal amount outstanding and $12 million for accrued and unpaid interest through the date of redemption.
Vehicle Debt

HVF II U.S. Vehicle Variable Funding Notes

In August 2016, HVF II terminated $500 million of commitments under the HVF II Series 2014-A Class A Notes and $20 million of commitments under the HVF II Series 2014-A Class B Notes, which commitments would have otherwise terminated as previously scheduled in October 2016. In connection with such terminations, HVF II repaid approximately $330 million of the outstanding principal amount of the HVF II Series 2014-A Class A Notes and $20 million of the outstanding principal amount of the HVF II Series 2014-A Class B Notes. There are no HVF II Series 2014-A Notes outstanding at September 30, 2016.
In June 2016, HVF II terminated $1.8 billion of commitments under the HVF II Series 2014-A Class A Notes, which commitments would have otherwise terminated as previously scheduled in October 2016, such that after giving effect

20

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

to such termination the aggregate maximum principal amount of the HVF II Series 2014-A Class A Notes was $500 million (subject to borrowing base availability). HVF II also terminated $20 million of commitments under the HVF II Series 2013-B Class B Notes and $20 million of commitments under the HVF II Series 2014-A Class B Notes, such that after giving effect to such terminations the aggregate maximum principal amount of the HVF II Series 2013-B Class B Notes and the HVF II Series 2014-A Class B Notes were $55 million and $20 million, respectively (in each case, subject to borrowing base availability).
In addition, in June 2016 HVF II transitioned approximately $500 million of commitments available under the HVF II Series 2013-B Class A Notes to the HVF II Series 2013-A Class A Notes, such that after giving effect to such transition the aggregate maximum principal amount of the HVF II Series 2013-A Class A Notes and the HVF II Series 2013-B Class A Notes were $2.2 billion and $1.0 billion, respectively (in each case, subject to borrowing base availability).
The net proceeds from the issuance of the HVF II Series 2016-3 Notes and HVF II Series 2016-4 Notes (as defined below), together with available cash, were used to repay $820 million of the outstanding principal amount of the HVF II Series 2014-A Notes. The net proceeds from the issuance of the HVF II Series 2016-1 Notes and HVF II Series 2016-2 Notes (as defined below), together with available cash, were used to repay approximately $741 million of the outstanding principal amount of the HVF II Series 2014-A Notes and approximately $264 million of the outstanding principal amount of the HVF II Series 2013-A Notes.

HVF II U.S. Vehicle Medium Term Notes

In June 2016, HVF II issued the Series 2016-3 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the "HVF II Series 2016-3 Notes") and Series 2016-4 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the "HVF II Series 2016-4 Notes") in an aggregate principal amount of approximately $848 million. The expected maturities of the Series 2016-3 Notes and the Series 2016-4 Notes are July 2019 and July 2021, respectively. There is subordination within the HVF II Series 2016-3 Notes and the HVF II Series 2016-4 Notes based on class. An affiliate of HVF II purchased the Class D Notes of each such series, and as a result, approximately $48 million of the aggregate principal amount is eliminated in consolidation.

In February 2016, HVF II issued the Series 2016-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-1 Notes”) and Series 2016-2 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-2 Notes”) in an aggregate principal amount of approximately $1.1 billion. The expected maturities of the HVF II Series 2016-1 Notes and the HVF II Series 2016-2 Notes are March 2019 and March 2021, respectively. There is subordination within the HVF II Series 2016-1 Notes and the HVF II Series 2016-2 Notes based on class. An affiliate of HVF II purchased the Class D Notes of each such series, and as a result approximately $61 million of the aggregate principal amount is eliminated in consolidation.

HFLF Variable Funding Notes

In September 2016, HFLF entered into an agreement pursuant to which the maturity of the HFLF Series 2013-2 Notes was extended from September 2017 to September 2018.

HFLF Medium Term Notes

In April 2016, HFLF issued the Series 2016-1 Asset-Backed Notes, Class A, Class B, Class C, Class D, and Class E (collectively, the “HFLF Series 2016-1 Notes”) in an aggregate principal amount of $400 million. The expected final maturity of the HFLF Series 2016-1 Notes is February 2019 to April 2019, based upon assumptions made at the time of the pricing of the HFLF Series 2016-1 Notes. The HFLF Series 2016-1 Notes (other than the Class A-2 Notes which are fixed rate) are floating rate and carry an interest rate based upon a spread to one-month LIBOR. An affiliate of HFLF purchased the Class E Notes, and as a result approximately $15 million of the aggregate principal amount is eliminated in consolidation.

The net proceeds from the issuance of the HFLF Series 2016-1 Notes, together with available cash, were used to repay $400 million of amounts then-outstanding under the HFLF Series 2013-2 Notes.

21

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


U.S. Vehicle Revolving Credit Facility

In June 2016, in connection with the Spin-Off, Hertz executed a U.S. Vehicle Revolving Credit Facility of $200 million (the “U.S. Vehicle RCF”). Eligible vehicle collateral for the U.S. Vehicle RCF includes retail vehicle sales inventory, certain vehicles in Hawaii and Kansas and other vehicles owned by certain of the Company’s U.S. operating companies.

U.S. Vehicle Financing Facility

In June 2016, in anticipation of the Spin-Off, the U.S. Vehicle Financing Facility was terminated. Vehicles that, prior to the Spin-Off, would have been financed under the U.S. Vehicle Financing Facility will be financed under the U.S. Vehicle RCF or the HVF II U.S. ABS Program going forward, as applicable.

European Revolving Credit Facility

In June 2016, Hertz Holdings Netherland B.V. ("HHN BV"), an indirect wholly-owned subsidiary of Hertz, amended the European Revolving Credit Facility to provide for aggregate maximum borrowings (subject to borrowing base availability) of up to €340 million during the peak season, for a seasonal commitment period through December 2016. Following the expiration of the seasonal commitment period, aggregate maximum borrowings available under the European Revolving Credit Facility will revert to up to €250 million (subject to borrowing base availability).

European Vehicle Notes

In September 2016, HHN BV issued 4.125% Senior Notes due October 2021 in an aggregate original principal amount of €225 million. Proceeds of the issuance of such notes, together with available cash, were used to repay amounts outstanding under the European Revolving Credit Facility and to finance European fleet operations.

European Securitization

In June 2016, certain of Hertz’s foreign subsidiaries entered into an agreement pursuant to which certain terms of the European Securitization were amended. The amendment provides for, among other things, aggregate maximum borrowings (subject to borrowing base availability) of up to €460 million and an extension of the maturity from October 2017 to October 2018.

Australian Securitization

In July 2016, HA Fleet Pty Limited, an indirect wholly-owned subsidiary of Hertz, entered into an agreement pursuant to which the maturity of the Australian Securitization was extended from December 2016 to July 2018.

Brazilian Vehicle Financing Facility

In April 2016, the Company entered into an agreement pursuant to which the maturity of the Brazilian Vehicle Financing Facility was extended from April 2016 to October 2016.

Capitalized Leases-U.K. Leveraged Financing

In June 2016, the U.K. Leveraged Financing was amended to provide for aggregate maximum leasing capacity (subject to asset availability) of up to £300 million during the peak season, for a seasonal commitment period through October 2016. Following the expiration of the seasonal commitment period, aggregate maximum borrowings available under the U.K Leveraged Financing will revert to up to £250 million (subject to asset availability).

New Zealand Revolving Credit Facility


22

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

In September 2016, Hertz New Zealand Holdings Limited, an indirect wholly-owned subsidiary of Hertz, entered into a credit agreement that provides for aggregate maximum borrowings of NZD 60 million (subject to borrowing base availability) on a revolving basis under an asset-based revolving credit facility (the “New Zealand RCF”).

See also Note 19, "Subsequent Events," regarding financing transactions occurring subsequent to September 30, 2016.

Borrowing Capacity and Availability

Borrowing capacity and availability comes from the Company's "revolving credit facilities," which are a combination of variable funding asset-backed securitization facilities, cash-flow-based revolving credit facilities and asset-based revolving credit facilities. Creditors under each such asset-backed securitization facility and asset-based revolving credit facility have a claim on a specific pool of assets as collateral. The Company's ability to borrow under each such asset-backed securitization facility and asset-based revolving credit facility is a function of, among other things, the value of the assets in the relevant collateral pool. With respect to each such asset-backed securitization facility and asset-based revolving credit facility, the Company refers to the amount of debt it can borrow given a certain pool of assets as the borrowing base.

The Company refers to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., with respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility. With respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the Company refers to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt that can be borrowed given the collateral possessed at such time). With respect to the Senior RCF, "Availability Under Borrowing Base Limitation" is the same as "Remaining Capacity" since borrowings under the Senior RCF are not subject to a borrowing base.

The following facilities were available to the Company as of September 30, 2016:
(In millions)
Remaining
Capacity
 
Availability Under
Borrowing Base
Limitation
Non-Vehicle Debt
 
 
 
Senior RCF
$
1,100

 
$
1,100

Total Non-Vehicle Debt
1,100

 
1,100

Vehicle Debt
 
 
 
U.S. Vehicle RCF

 
4

HVF II U.S. Vehicle Variable Funding Notes
1,036

 
4

HFLF Variable Funding Notes
200

 

European Revolving Credit Facility

 

European Securitization
42

 
3

Canadian Securitization

 

Australian Securitization
72

 

Capitalized Leases
64

 

New Zealand RCF
12

 
6

Total Vehicle Debt
1,426

 
17

Total
$
2,526

 
$
1,117



23

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Letters of Credit

As of September 30, 2016, there were outstanding standby letters of credit totaling $614 million. Such letters of credit have been issued primarily to support the Company's vehicle rental concessions and leaseholds and its insurance programs as well as to provide credit enhancement for its asset-backed securitization facilities. Of this amount $600 million was issued under the Senior RCF, which has a $1.0 billion letter of credit sublimit, resulting in $400 million of availability under such sublimit. As of September 30, 2016, none of the letters of credit have been drawn upon.

Special Purpose Entities

Substantially all of the revenue earning vehicles and certain related assets are owned by special purpose entities, or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of such assets (including the assets owned by Hertz Vehicle Financing II LP, Hertz Vehicle Financing LLC, Rental Car Finance LLC, DNRS II LLC, HFLF, Donlen Trust and various international subsidiaries that facilitate the Company's international securitizations) are available to satisfy the claims of general creditors.

Some of these special purpose entities are consolidated variable interest entities, of which the Company is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of September 30, 2016 and December 31, 2015, the Company's International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets of $677 million and $418 million, respectively, primarily comprised of loans receivable and revenue earning vehicles, and total liabilities of $677 million and $418 million, respectively, primarily comprised of debt.

Covenants

The Company refers to Hertz and its subsidiaries as the Hertz credit group. The indentures for the Senior Notes contain covenants that, among other things, limit or restrict the ability of the Hertz credit group to incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions to parent entities of Hertz and other persons outside of the Hertz credit group), make investments, create liens, transfer or sell assets, merge or consolidate, or enter into certain transactions with Hertz's affiliates that are not members of the Hertz credit group.

Certain other debt instruments and credit facilities (including the Senior Facilities) contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, share repurchases or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of their business, make capital expenditures, or engage in certain transactions with certain affiliates.


24

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

The Senior RCF contains a financial maintenance covenant that is only applicable to the Senior RCF. This financial covenant and related components of its computation are defined in the credit agreement related to the Senior RCF. The financial covenant provides that Hertz's consolidated total net corporate leverage ratio, as defined in the credit agreement related to the Senior RCF, as of the last day of any fiscal quarter, commencing with September 30, 2016, may not exceed the ratios indicated below:
Fiscal Quarter(s) Ending
 
Maximum Ratio
September 30, 2016
 
5.25 to 1.00
December 31, 2016 through March 31, 2017
 
4.75 to 1.00
June 30, 2017 through September 30, 2017
 
5.25 to 1.00
December 31, 2017
 
4.75 to 1.00
March 31, 2018
 
4.50 to 1.00
June 30, 2018 through September 30, 2018
 
5.00 to 1.00
December 31, 2018 through March 31, 2019
 
4.50 to 1.00
June 30, 2019  through September 30, 2019
 
5.00 to 1.00
December 31, 2019 through March 31, 2020
 
4.50 to 1.00
June 30, 2020 through September 30, 2020
 
5.00 to 1.00
December 31, 2020 through March 31, 2021
 
4.50 to 1.00

Note 7Employee Retirement Benefits

Effective December 31, 2014, the Company amended the Hertz Corporation Account Balance Defined Benefit Pension Plan to permanently discontinue future benefit accruals and participation under the plan for non-union employees. While compensation credits are no longer provided under the plan, interest credits continue to be credited on existing participant account balances under the plan until benefits are distributed, and service continues to be recognized for vesting and retirement eligibility requirements.

Employee Matters Agreement

As described in Note 3, "Discontinued Operations," Hertz Global and Herc Holdings entered into the “Employee Matters Agreement” to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefit plans and programs and other related matters in connection with the Spin-Off of the equipment rental business. The Employee Matters Agreement governs Hertz Global's and Herc Holdings’ obligations with respect to such matters for current and former employees of the vehicle rental business and the equipment rental business. The Employee Matters Agreement specifies the method by which the pension plans are split in connection with the Spin-Off. Pension liabilities and an associated asset allocation related to employees of the equipment rental business will be transferred to a new plan. Amounts presented herein relate to pension expense associated with current and former employees of the vehicle rental business.

On June 30, 2016, in connection with the Spin-Off and transfer of assets and liabilities from combined U.S. pension and other post-retirement benefit plans to newly created Herc Holdings plans, the Company remeasured pension and other post-retirement liabilities and assets for several of its U.S. plans.  The remeasurement resulted in an increase to the Company's continuing operations net pension liability of $23 million compared to the net pension liability as of December 31, 2015.  The significant weighted-average assumptions used at the June 30, 2016 measurement date were as follows.

Discount rate
 
3.5%
Expected rate of return on plan assets
 
7.2%
Average salary increase
 
4.3%


25

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


The following table sets forth the net periodic pension expense:
 
Pension Benefits
 
U.S.
 
Non-U.S.
 
Three Months Ended September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Components of Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$

 
$

Interest cost
5

 
5

 
2

 
3

Expected return on plan assets
(7
)
 
(9
)
 
(3
)
 
(3
)
Net amortizations
2

 

 

 

Settlement loss

 
1

 

 
2

Net periodic pension expense (benefit)
$
1

 
$
(2
)
 
$
(1
)
 
$
2


 
Pension Benefits
 
U.S.
 
Non-U.S.
 
Nine Months Ended September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Components of Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
2

 
$
3

 
$
1

 
$
1

Interest cost
16

 
16

 
6

 
7

Expected return on plan assets
(21
)
 
(25
)
 
(9
)
 
(11
)
Net amortizations
6

 
2

 

 
1

Settlement loss
1

 
3

 

 
2

Net periodic pension expense (benefit)
$
4

 
$
(1
)
 
$
(2
)
 
$


Note 8Stock-Based Compensation

In accordance with the Employee Matters Agreement entered into between Hertz Global and Herc Holdings, as further described in Note 3, "Discontinued Operations," previously outstanding stock-based compensation awards granted under Old Hertz Holdings' equity compensation programs prior to the Spin-Off and held by certain executives and employees of HERC and Old Hertz Holdings were adjusted to reflect the impact of the Spin-Off on these awards. To preserve the aggregate intrinsic value of these stock-based compensation awards, as measured immediately before and immediately after the Spin-Off, each holder of Old Hertz Holdings stock-based compensation awards received an adjusted award consisting of a stock-based compensation award denominated in the equity of the company at which the person was employed following the Spin-Off. In the Spin-Off, the determination as to which type of adjustment applied to a holder’s previously outstanding Old Hertz Holdings award was based upon the type of stock-based compensation award that was to be adjusted and the date on which the award was originally granted under the Old Hertz Holdings equity compensation programs prior to the Spin-Off.

Under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, during the nine months ended September 30, 2016, the Company granted 200,364 non-qualified stock options to certain executives and employees at a weighted average grant date fair value of $15.81 as determined using the Black Scholes option pricing model; 285,185 restricted stock units ("RSUs") at a weighted average grant date fair value of $38.83 and 526,170 performance stock units ("PSUs") at a weighted average grant date fair value of $39.38 with vesting terms of three to five years. In connection with the Spin-Off on June 30, 2016, as further described in Note 1, "Background," outstanding stock-based compensation awards for employees of the global vehicle rental business were converted at a ratio of 1 former unit to 0.2523 new units, with a corresponding change in the exercise price of outstanding options. The share amounts

26

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

represented herein reflect the post-conversion figures. There were no significant changes to assumptions used to fair value the options, nor was there material incremental compensation expense as a result of the Spin-Off.

A summary of the total compensation expense and associated income tax benefits recognized under all plans, including the cost of stock options, RSUs and PSUs, is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Compensation expense
$
5

 
$
5

 
$
16

 
$
13

Income tax benefit
(2
)
 
(2
)
 
(6
)
 
(5
)
Total
$
3

 
$
3

 
$
10

 
$
8


As of September 30, 2016, there was $38 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Old Hertz Holdings under all plans. The total unrecognized compensation cost is expected to be recognized over the remaining 1.9 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Note 9Restructuring

During 2016, the Company evaluated its workforce, product offerings and operations and initiated approximately $67 million in restructuring programs that include headcount reductions, business process re-engineering, asset impairments and outsourcing certain information technology application and infrastructure functions to a third party service provider. These programs are expected to be completed within the next twelve months.

Restructuring charges under these programs for the periods shown are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
By Type:
 
 
 
 
 
 
 
Termination benefits
$
7

 
$
4

 
$
23

 
$
16

Impairments and asset write-downs
28

 
1

 
31

 
2

Facility closure and lease obligation costs
2

 
1

 
7

 
15

Other

 
(2
)
 
1

 
(4
)
Total
$
37

 
$
4

 
$
62

 
$
29


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
By Caption:
 
 
 
 
 
 
 
Direct vehicle and operating
$
29

 
$

 
$
38

 
$
15

Selling, general and administrative
8

 
4

 
24

 
14

Total
$
37

 
$
4

 
$
62

 
$
29



27

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
By Segment:
 
 
 
 
 
 
 
U.S. Rental Car
$
30

 
$
2

 
$
51

 
$
18

International Rental Car
3

 
4

 
7

 
11

Corporate
4

 
(2
)
 
4

 

Total
$
37

 
$
4

 
$
62

 
$
29


The following table sets forth the activity affecting the restructuring accrual which is included in accrued liabilities in the accompanying condensed consolidated balance sheets during the nine months ended September 30, 2016. Other is primarily comprised of future lease obligations at September 30, 2016 which will be paid over the remaining term of the applicable leases.
(In millions)
Termination
Benefits
 
Other
 
Total
Balance as of December 31, 2015
$
9

 
$
15

 
$
24

Charges incurred
23

 
39

 
62

Cash payments
(15
)
 
(6
)
 
(21
)
Other non-cash changes

 
(31
)
 
(31
)
Balance as of September 30, 2016
$
17

 
$
17